Question

After doing the readings and watching the videos. Answer the following.

1. Killtrol® is a patent drug of Clark Pharmaceuticals. As of April 1, 2019, it will go off patent and become a generic drug (everyone can manufacture it). Answer the following questions.

      a) What market structure best describes the market structure for Killtrol® while on patent?

      b) What market structure best describes the market structure for Killtrol® when it goes off patent?

      c) What will happen to the following when Killtrol® goes off patent?

                  1) The price? Why?

                  2) Profits at Clark Pharmaceuticals? Why?

                  3) The output (quantity)?

Answer 1

a) The market structure of the Killtrol while on a patent is a monopoly market since a patent grants the rights only to the firm to produce the given product and no one else can produce it.

b) When the market goes off patent then as per the market characteristics, Killtrol must have been making huge profits. When the patent is over then the others firms can produce the given product which will signify free entry in the industry and so a lot of firms will enter the market and it will change the market to perfect competition.

c) The price of the Killtroll will decrease as with an increase in market output with the entry of new firms, the price decreases.

The profits of the Clark Pharmaceuticals will decrease because they will no longer be a monopoly and so they will change from being a price maker to a price taker firm.

The output produced in the market will increase as the entry of new firms will shift the market supply to the right.